UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended January 31, 2007
or
|_| Transition Report Under Section 13 or 15(d) of the Exchange Act
Commission File Number 1-8690
DataMetrics Corporation
--------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-3545701
---------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1717 Diplomacy Row
Orlando, Florida 32809
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(407) 251-4577
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
Number of shares outstanding of the issuer's common stock, par value $.01,
outstanding as of March 17, 2007: 11,534,736 shares.
Transitional Small Business Disclosure Format (Check one): YES |_| NO |X|
Index to Form 10-QSB
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet as of January 31, 2007 3
Consolidated Statement of Changes in Stockholders' Equity
for the Three months Ended January 31, 2007 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three months Ended January 31, 2006 5
Consolidated Statements of Operations for the Three Months
Ended January 31, 2007 and January 31, 2006 6
Consolidated Statements of Cash Flows for the Three Months
Ended January 31, 2007 and January 31, 2006 7-8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis 11-13
Item 3. Controls and Procedures 14
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and uses of funds. 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of matters to a vote of security holders. 15
Item 5. Other Information 15
Item 6. Exhibits 15
Certifications 16-20
Signatures 21
Page 2 of 21
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except share data)
January 31,
2007
----------
ASSETS
Current Assets
Cash $ 294
Accounts receivable, net of allowance for doubtful accounts of $0 413
Inventory, net of allowance for obsolete inventory of $6,070 908
Other Current Assets 51
--------
Total current assets 1,666
Property and Equipment
Furniture, Fixtures and computer equipment 1,197
Machinery and equipment 555
--------
Total Property and Equipment 1,752
Less Accumulated Depreciation (1,751)
--------
Net Property and Equipment 1
Total Assets $ 1,667
========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable $ 258
Accrued Expenses 413
Warranty Reserve 40
Notes Payable - Related parties 500
Short Term Debt 141
--------
Total Current Liabilities 1,352
Stockholders equity:
4% Cumulative Preferred Stock, $.01 par value ($1,500 aggregate liquidation
preference); 40,000,000 Authorized; 1,000,000 issued and outstanding 10
Common Stock, $.01 par value; 800,000,000 shares
Authorized; 11,534,736 issued and outstanding 116
Additional Paid In Capital 64,683
Accumulated Deficit (64,494)
--------
Total Stockholders Equity 315
--------
Total Liabilities and Stockholders Equity $ 1,667
========
The accompanying "Notes to Consolidated Financial Statements" form an
integral part of these statements.
Page 3 of 21
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the three months ended January 31, 2007
(in thousands, except share data)
Common Stock Ser. B Preferred Total
------ ----- ---------------- Add'l Stock
Number Dollar Number Dollar Paid-In Accum holders
of Shares Amount of Shares Amount Capital Deficit Equity
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at Oct. 31, 2006 11,359,849 $ 114 700,000 $ 7 $ 64,367 $ (64,654) $ (166)
Issuance of Series B
Preferred Stock ~ ~ 300,000 3 297 ~ 300
Issuance of Common Stock ~ ~
for Series B Preferred
Stock dividend 174,887 2 19 (21) --
Net Income ~ ~ ~ ~ ~ 181 181
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at Jan. 31, 2007 11,534,736 $ 116 1,000,000 $ 10 $ 64,683 $ (64,494) $ 315
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
Page 4 of 21
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the three months ended January 31, 2006
(in thousands, except share data)
(Restated)
Common Stock Ser. A Preferred Ser. B Preferred Total
------ ----- ------------------ ---------------- Add'l Stock
Number Dollar Number Dollar Number Dollar Paid-In Accum holders
of Shares Amount of Shares Amount of Shares Amount Capital Deficit Deficit
----------- ------ ----------- ------ ----------- ------- ----------- ----------- -----------
Balances at Oct. 31,
2005 32,112,103 $ 321 892,652 $ 9 -- -- $ 58,142 $ (61,754) $ (3,282)
Conversion of DMTR
loan of
$2.9 million plus ~ ~ ~ ~
accrued interest 244,736,145 2,447 633 ~ 3,080
Conversion of Series A
Preferred into Common ~ ~
Stock 48,947,229 490 (892,652) (9) (481) ~ --
Conversion of 12%
Bridge loan
into Series B ~ ~ ~ ~
Preferred Stock 500,000 $ 5 495 ~ 500
Warrants for the
purchase of
of 386,314,860 shares ~ ~ ~ ~ ~ ~
of Common Stock 2,186 ~ 2,186
Net Loss ~ ~ ~ ~ ~ ~ ~ (2,071) (2,071)
----------- ------ ----------- --- ----------- ----- ----------- ----------- -----------
Balances at Jan. 31,
2006 325,795,477 $3,258 -- -- 500,000 $ 5 $ 60,975 $ (63,825) $ 413
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
Page 5 of 21
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
for the three months ended
January 31 January 31
2007 2006
(Restated)
--------- ---------
Sales $ 1,121 $ 1,155
Cost of Sales 536 771
--------- ---------
Gross Profit $ 585 $ 384
--------- ---------
Selling, General and Administrative
Personnel and Related Costs $ 258 $ 196
Other 146 299
--------- ---------
Total Selling, General and Administrative $ 404 $ 495
--------- ---------
Income (Loss) from Operations 181 (111)
Other income and expense -- (1,960)
--------- ---------
Net Income (Loss) $ 181 $ (2,071)
========= =========
Earnings (loss) per share of common stock;
Basic $ 0.015 $ (0.015)
========= =========
Diluted $ 0.007 $ (0.015)
========= =========
Weighted average number of common shares outstanding;
Basic 11,451 137,246
========= =========
Diluted 24,386 137,246
========= =========
The accompanying "Notes to Consolidated Financial Statements" form an
integral part of these statements.
Page 6 of 21
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands, except per share data)
for the three months ended
January 31 January 31
2007 2006
(Restated)
---------- --------
Cash Flows from Operating Activities:
Net income(loss) 181 (2,071)
Adjustments to reconcile net loss to net cash used
in operating activities:
Gain on Sale of Building -- (216)
Depreciation expense 6 4
Expenses Paid from Debt Financing -- 249
Options Issued to Investors during restructuring -- 2,186
Changes in assets and liabilities:
Accounts receivable (333) (31)
Inventories (203) 16
Prepaid expenses and other current assets (8) (40)
Accounts payable (25) (271)
Accrued expenses 57 (102)
------------------
Net cash used in operating activities (325) (276)
Cash Flows from Investing Activities:
Proceeds from Sale of Building -- 1,445
Capital expenditures for property and equipment -- --
------------------
Net cash provided by investing activities -- 1,445
Cash Flows from Financing Activities:
Proceeds from loan payable -- 248
Proceeds from issuance of Series `B' preferred stock 300 --
Payments on Long Term Debt -- (1,180)
------------------
Net cash provided by (used in) financing activities 300 (932)
Net (decrease) increase in cash (25) 237
Cash at the beginning of the period 319 146
------------------
Cash at the end of the period 294 383
------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest, net -- $ 72
NONCASH INVESTING / FINANCING ACTIVITIES
Restructuring incentive expenses paid by issuing
stock options -- $ 2,186
Conversion of long term debt and related accrued
interest into common stock -- $ 3,081
Conversion of long term debt and related accrued
interest into Series B preferred stock -- $ 500
Page 7 of 21
Conversion of Series A preferred stock into
common stock -- $ 489
Expenses paid with the issuance of notes payable -- $ 249
Payment of short term bridge loan by issuing
new note payable -- $ 200
Forgiveness of debt as part of the sale of building -- $ 30
Issuance of Common Stock for Series B Preferred Stock dividend $ 21 --
The accompanying "Notes to Consolidated Financial Statements" form an
integral part of these statements.
Page 8 of 21
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2007
(Unaudited)
1. The financial statements include the accounts of DataMetrics Corporation.
The accompanying condensed financial statements are unaudited and have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission relating to interim financial statements.
These condensed financial statements do not include all disclosures provided in
the company's annual financial statements. The condensed financial statements
should be read in conjunction with the financial statements and notes thereto
for the year ended October 31, 2006 contained in the company's Form 10-KSB filed
with the Securities and Exchange Commission. All adjustments of a normal
recurring nature, which, in the opinion of management, are necessary to present
a fair statement of results for the periods have been made. Results of
operations are not necessarily indicative of the results to be expected for the
full year.
2. INVENTORIES
Stockroom inventories consist primarily of materials used by the Company for
existing and anticipated contracts and materials and finished assemblies which
are held to satisfy spare parts requirements of the Company's customers. Those
parts not expected to be sold within one year are classified as a non-current
asset and fully reserved. The Company evaluates all inventories for obsolescence
on a periodic basis and records estimated reserves accordingly.
Inventories as of January 31, 2007 consist of the following:
Inventories Parts and sub-assemblies $ 618
Work in Process 290
Obsolete Inventory 6,070
-------
Total Inventory 6,978
Reserve for Obsolete Inventory (6,070)
-------
Net Inventory $ 908
3. SHORT TERM DEBT
Short term debt at January 31, 2007 consist of the following:
In December 1998, the Company closed a private placement of approximately $3.45
million of 10% Subordinated Notes originally due in December 2000. Negotiations
for settlement of this debt are ongoing. The Notes are unsecured and callable
under certain conditions. $ 141
4. NOTES PAYABLE
Notes Payable - Related Parties at January 31, 2007 consist of the following:
Notes Payable to investors; interest expense at 10% is to be paid monthly
commencing January 31, 2007, including accrued and unpaid interest from 2006;
principal and unpaid interest is due in full in December 2007. The note is
secured by a first priority lien on all Company assets. $ 500
Page 9 of 21
5. COMMON STOCK
On December 15, 2006 the Company issued 174,887 shares of Common Stock with a
par value of $0.01 in the amount of $20,986 ($0.12 per share) to a related
party, SG DMTI Capital, LLC in lieu of the 4% annual cumulative dividend on the
Series B Preferred Stock that was due on November 30, 2006.
6. PREFERRED STOCK
On December 6, 2006 the Company issued 300,000 shares of Series `B' Preferred
Stock with a par value of $0.01 to a related party, SG DMTI Capital, LLC. At
January 31, 2007 the Company has 1,000,000 shares of Series `B' Preferred Stock
with a par value of $0.01 per share outstanding (1,500,000 authorized). The
stock has a cumulative dividend of 4% per annum.
7. EARNINGS PER SHARE CALCULATION
Income Shares
(Numerator) (Denominator)
000's 000's Per Share Amount
------------------ -------------------- -----------------
Net income $181 ~ ~
Less: Preferred dividends (7) ~ ~
------------------
Basic earnings per share
Income available to common stockholders $174 11,451 $0.015
-----------------
Effect of dilutive securities
Warrants and options 12,935
------------------ --------------------
Dilutive earnings per share
Income available to common stockholders plus assumed
conversions $174 24,386 $0.007
------------------ -------------------- -----------------
8. SUBSEQUENT EVENTS
On February 2, 2007, Mr. Rafik Moursalien resigned as Chief Financial Officer of
the Company. Mr. Edward Kroning, the Company's Secretary, was elected to serve
as interim Chief Financial Officer until a successor is appointed.
On February 8, 2007 the Company amended the SGD warrant to correct an error of
omission reflecting that the intent of the agreement signed December 30, 2005
was to be $0.01 post-split, not pre-split as described in the agreement.
On February 8, 2007 SGD signed an agreement extending the maturity of its
Secured Promissory Note from December 31, 2006 to December 31, 2007.
On February 8, 2007 Seth Lukash was elected to serve on the Company's Board of
Directors.
Page 10 of 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Prospective
investors are cautioned that such statements are only predictions and those
actual events or results may differ materially.
BUSINESS OVERVIEW
The Company designs, develops, and manufactures computers and computer
peripheral equipment for military, industrial and commercial applications where
reliable operation of the equipment in challenging environments is imperative.
The systems and equipment are qualified for use in airborne, shipboard, and
ground based applications. The Company's product lines include a broad range of
computers, computer workstations, servers, printers, plotters and monitors.
The Company offers military specified and ruggedized versions of flat
panel monitors and other peripheral equipment (including computers, printers,
keyboards and trackballs) encased in shock, vibration and temperature resistant
chassis. The chassis produced by the Company are used in conjunction with its
product by the military to house this sensitive ruggedized equipment. The Navy
P3 Orion, Air Force AWACS and Army Fire-Finder programs all require rugged rack
enclosures to protect the equipment from shock, vibration and other damage which
may be experienced in a harsh operating environment. DataMetrics continues to
increase its presence in the military arena including United States Air Force
avionics and ground-based systems as well as United States Army system
diagnostics. DataMetrics has also increased its presence in the mining sector
and aviation industry, primarily with its electronic flight bag (EFB)
controller. DataMetrics' equipment is designed and qualified for use as part of
commercial airlines cockpit systems.
For the quarter ended January 31, 2007, the Company experienced a
seasonally slow receipt of orders, though proposal activity was greater than
normal. Thus, the Company expects to see an increase in order activity in the
following quarters and attributes the delay in orders due to the holiday season
and a continued focus on budget spending for troops and munitions in the war
effort in Afghanistan and Iraq.
RESULTS OF OPERATIONS
Three Month Period Ended January 31, 2007 Compared
To Three Month Period Ended January 31, 2006
Sales for the quarter ended January 31, 2007 were $1,121,000 a decrease of
$34,000 or 3%, compared with sales of $1,155,000 in the same period in the prior
fiscal year. Sales approximated the same amount as reported for the same period
in the prior fiscal year.
Cost of sales for the quarter ended January 31, 2007 was $536,000 (48% of
sales), a decrease of $235,000 or 20%, compared with $771,000 (67% of sales) for
the same period in the prior fiscal year. Gross profit percentage increased
compared to the same period in the prior fiscal year due to the presence of one
contract where the Company was the sole supplier and was able to obtain premium
pricing.
Selling, general and administrative ("SG&A") expenses for the quarter
ended January 31, 2007 were $404,000 (36% of sales) a decrease of $91,000 or
18%, compared with $495,000 (43% of sales) for the same period in the prior
fiscal year. The decrease is primarily attributable to expenses incurred for the
restructuring that occurred in the same period of the prior fiscal year.
Page 11 of 21
Interest expense amounted to $16,000 for the quarter ended January 31,
2007 compared with net interest expense of $59,000 for the same period in the
prior year. The significant decrease in interest expense for the quarter ended
January 31, 2007 compared to the same period of the prior year is attributable
to the reorganization which occurred early in fiscal year 2006. As a result of
the said reorganization, the majority of long term loans were either paid in
full or converted into equity of DataMetrics Corporation.
The net income for the quarter ended January 31, 2007 amounted to $181,000
compared with a net loss of $2,071,000 for the same period in the prior year.
Net income for 2007 was due primarily to increased gross profit and reductions
in SG&A and interest expense as previously discussed. The large net loss in 2006
was due primarily to options totaling 386,315,000 which were issued during 2006.
The exercise price for the options was less than the market price of the stock
resulting in stock based cost in the amount of $2,186,000 being recorded.
Management has determined that, based on the Company's historical losses
from recurring operations, the Company will not recognize its net deferred tax
assets at January 31, 2007. Ultimate recognition of these tax assets is
dependent, to some extent, on future revenue levels and margins. It is the
intention of management to assess the appropriate level for the valuation
allowance each quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working
capital. The Company has relied primarily on internally generated funds, private
placement proceeds, and subordinated debt to finance its operations. The Company
has no material commitments for capital expenditures which would affect its
liquidity.
Net cash used in operations was $325,000 and $276,000 in 2007 and 2006
respectively. The change from 2006 to 2007 was primarily due to an increase in
inventory levels to fulfill upcoming sales orders.
Net cash provided by investing activities in 2006 was $1,445,000 derived
from the sale of the building. There were no investing activities in 2007.
Net cash provided / (used) by financing activities was $300,000 and
$(932,000) in 2007 and 2006, respectively. The change from 2006 to 2007 was
primarily related to the refinancing of the property located at 1717 Diplomacy
Row, Orlando, FL., and the issuance of Preferred stock as described below.
The Company has generated much of the cash flow to sustain current
operations through a combination of sales and from equity transactions.
On December 6, 2006, the Company issued SGD 300,000 shares of Series B
Preferred Stock for $300,000, which represent the final shares of Series B
Preferred Stock issuable under the Series B Preferred Stock and Warrant Purchase
Agreement dated December 30, 2005. The proceeds were used for general working
capital.
On December 15, 2006 the Company issued 174,887 shares of Common Stock
with a par value of $0.01 in the amount of $20,986 to a related party, SG DMTI
Capital, LLC in lieu of the 4% annual cumulative dividend on the Series B
Preferred Stock that was due on November 30, 2006.
Even though the Company has incurred losses over the past several years,
both the working capital and accumulated deficits have improved as a result of
actions Management has taken to ensure the Company will continue as a going
concern, particularly the sale-leaseback of the Company's property and the
restructuring in December 2005. The Company is now in a position where its
current assets are greater than current liabilities indicating better management
of working capital. The Company is dependent upon its sales to fund its
operating cash requirements.
Page 12 of 21
FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS
Except for the historical information and statements contained in this
report, the matters set forth in this report are "forward-looking statements"
that involve uncertainties and risks. Some are discussed at appropriate points
in this report and the Company's other SEC filings. Others are included in the
fact that the Company has been engaged in supplying equipment and services to
the U.S. government defense programs which are subject to special risks,
including dependence on government appropriations, contract termination without
cause, contract re-negotiations and the intense competition for available
defense business.
Page 13 of 21
Item 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Under the supervision and with the
participation of our management, including our principal executive and financial
officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or
Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended) as of
the end of the period covered by this report. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to our management,
including our principal executive and financial officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting. There were no
significant changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting during the period covered by this report.
Page 14 of 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is, from time to time, the subject of litigation, claims and
assessments arising out of matters occurring during the normal operation of the
Company's business. In the opinion of management, the liability, if any, under
such current litigation, claims and assessments, that are material, have been
properly accrued.
Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds.
On December 6, 2006, the Company issued SGD 300,000 shares of Series
B Preferred Stock for $300,000, which represent the final shares of Series B
Preferred Stock issuable under the Series B Preferred Stock and Warrant Purchase
Agreement dated December 30, 2005. The proceeds were used for general working
capital.
Item 3. Defaults upon Senior Securities
The Company is in default on certain unsecured indebtedness of
approximately $141,000 in principal and $90,000 in unpaid interest as the
monthly payments of $10,000 that were to commence September 2006 for the unpaid
interest have not been paid as scheduled per the agreement.
The Company is in default on certain secured indebtedness in the principal
amount of $500,000 as the monthly payments of $5,000 for unpaid interest due in
2006 that were to commence January, 2007 have not been paid as scheduled by the
agreement.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits:
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32 Certification of CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Page 15 of 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Form 10-QSB to be signed on its behalf by its
duly authorized representatives.
DATAMETRICS CORPORATION
------------------------
/s/ Daniel Bertram
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Name Title Date
- ------------------- ------------------------ ---------------
/s/ Daniel Bertram Chief Executive Officer March 17, 2007
- -------------------
Daniel Bertram
/s/ Edward Kroning Chief Financial Officer March 17, 2007
- -------------------
Edward Kroning
Page 16 of 21